4 Surprising Ways You Can Lose Money Investing in Cryptocurrency | The Motley Fool

Despite people saying cryptocurrency ‘s a ripple about to burst, Bitcoin ( BTC -0.01 % ), Ethereum ( ETH -0.58 % ), Dogecoin ( DOGE -0.91 % ), and many other altcoins are drawing in fresh investors all the time. Like any investment, there ‘s a hazard of loss when you invest in cryptocurrency. But betting on the incorrect one is n’t the alone way it could all go amiss. here ‘s a front at four ways investing in cryptocurrency could cost you, and how you can reduce that risk .

1. Investing in the wrong cryptocurrency

OK, so when it comes to investing in anything, there are n’t truly clear-cut rights and wrongs. People have made fortunes betting on penny stocks and glistening new cryptos that do n’t end up going anywhere in the long run. They were just lucky adequate to get in and out at the right times. But most people are n’t that fortunate .
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It ‘s difficult to predict which cryptocurrencies, if any, are going to stand the test of fourth dimension and which will fall by the wayside. But you ‘ll have better chances of picking a winner if you research each mint you ‘re matter to in. Try to understand what distinguishes it from Bitcoin and what applications it could be used for .
Do n’t good jump onto the bandwagon and buy whatever ‘s on a hot streak right now, or whichever coin has the best memes. That ‘s a dangerous way to choose your investments because when the social media ballyhoo moves on to something else, you could lose a draw of money.

2. Cryptocurrency scams

just recently, the Federal Trade Commission ( FTC ) announced that more than 7,000 investors lost over $ 80 million in cryptocurrency scams from October 2020 to March 2021. With then many people interested in cryptocurrency correct immediately, it ‘s easy for scammers to blend in with the push .
Some promise to offer insider investing tips. Others pretend to be a government agent or a fame, like Elon Musk, offering to give you money if you send cryptocurrency. There ‘s a variety of tactics, but they all end the like way : Your cryptocurrency ‘s gone and you get nothing in return .
Be fishy of anyone who tells you they can make you a fortune if you give them your cryptocurrency to invest, and stay away from companies that insist on being paid in cryptocurrency .
If you do come across a victimize, submit a complaint to the FTC, the Commodities Futures Trading Commission, the Securities and Exchange Commission, and the cryptocurrency exchange you used if you sent money to a swindler .

3. Hackers

Because cryptocurrencies are stored in digital wallets and all transactions occur on-line, hackers are sometimes able to get hold of other people ‘s cryptocurrency, despite the security measures in identify to prevent this.

binding in 2014, a Tokyo-based cryptocurrency central named Mt. Gox had to file for bankruptcy after hackers stole the equivalent of $ 460 million in U.S. dollars. And that ‘s not the alone time this classify of thing has happened .
You have to be proactive if you want to keep your cryptocurrency safe. That means avoiding scams and only working with legalize cryptocurrency exchanges. Research the switch over ‘s security to see how it protects your money and make certain you ‘re comfortable with this. Compare it with other popular exchanges before you decide which one you want to invest with .
You could besides consider storing your cryptocurrency in an offline ( or “ cold ” ) wallet, although you open yourself up to the possibility of physical larceny if you leave it lying round .

4. Password loss

If you lose the password to your cold wallet, you could lose access to your cryptocurrency permanently, tied if you ‘ve got the wallet right in front of you. If you have a hot wallet — one that ‘s connected to the internet — then you might have to worry about other people holding on to their passwords .
One peculiarly devastating case happened in 2019 when Gerald Cotten, founder of Canadian-based cryptocurrency exchange Quadriga, unexpectedly died. He was the only person who knew the central ‘s crucial passwords, and without that data, his clients were unable to access the combined $ 250 million in their accounts. This intelligibly led to an hubbub, causing some to go vitamin a far as to demand Cotten ‘s body be exhumed to prove he was actually dead and not scamming them. As it turned out, the exchange was late determined to be a Ponzi system adenine well .
It ‘s up to you to decide where you feel more comfortable storing your cryptocurrency, but understand the pros and cons to each approach. If you use a cold wallet, memorize or keep your list of passwords somewhere secure, along with your wallet, where others wo n’t find it.

You ‘ll never be able to take all the risk out of cryptocurrency, but by following the tips above, you can reduce your odds of passing reasonably. And if you do n’t feel comfortable investing in cryptocurrency given all the ways you could lose money, you could try investing in cryptocurrency stocks rather. These are stocks of companies that stand to benefit from increased cryptocurrency adoption. But they can hush be strong companies in their own right, so if the crypto ripple does burst, you wo n’t lose everything .

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